Reward Management

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MARCH 2013

Describe the merits and demerits of introducing performance related pay scheme in organizations. The following are the merits of introducing performance related pay scheme in an organization: •It provides a direct incentive for employees to achieve defined work targets. This enables employees to know what their targets and meet them. •It retains the employees who have key talents. Through this scheme the employees who have key and valuable talents are able to be retained in the organization. •Unmotivated employees are able to improve their work performance thus increasing the organizations productivity. •Lower cost on supervision

Improved production quality
Employees will be motivated thus reducing employee turnover and absenteeism. •The scheme is way of getting employees to work and focus on the organizations objectives. •A performance culture can be introduced while introducing the payment scheme. •It is an effective way of dealing with poor performance of employees. The following are the demerits of introducing performance related pay scheme in organizations: •It may cause conflicts because some employees may feel that other employees are receiving a different bonus for what they feel is the same effort. •It may not motivate in the sense that the bonuses may contribute to a very small propotion of the overall salary. •It is very difficult to measure performance when it comes to certain occupations. •Trade unions’ collective bargaining may be ruined due to the fact that pay is determined by individual’s performance. •The scheme does not encourage team work because the employees are rewarded individually. •The performance appraisal may be affected because the focus is on financial reward rather than developmental needs. •Employees may be de-motivated if their targets are set too high...
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